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Look Out Below: The Real Economy Just Hit Stall Speed

Tyler Durden's picture




 

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

Look out below, for even with bloated federal spending, the real economy has hit stall speed.

What do we mean when we say the U.S. economy is at stall speed? Stall speed refers to the air speed and angle of the wing (called the angle of attack) needed to keep an aircraft aloft.

"An aircraft flying at its stall speed cannot climb, and an aircraft flying below its stall speed cannot stop descending. Any attempt to do so by increasing angle of attack, without first increasing airspeed, will result in a stall."

In layman's terms, once an airplane's speed drops to the point that cranking the wing angle up no longer provides enough lift, the airplane stalls out and starts an unintended (and often uncontrolled) descent.

The real U.S. economy (as opposed to the stock market) is at stall speed, and is about to crash into recession. The analogy (via longtime correspondent B.C.) is apt, as the economy is losing speed on multiple fronts.

B.C.'s chart is unique, in that it includes everyone's favorite stimulus, huge federal deficits: trillions of dollars borrowed from our children and grandchildren to support bloated federal fiefdoms, favored cartels and various bread-and-circuses programs that placate the restive masses.

There are three parts to this chart. Let's look at them one at a time. The red line is real final sales per capita, which means all sales in the economy adjusted for inflation divided by the population, i.e. per person.

This scrapes away some of the distortions built into gross domestic product (GDP), which is heavily gamed to provide the illusion of "growth."

Note that real sales have reached lower highs and hit lower lows for the past three decades--they've now rolled over, which means the economy is slowing.

The black line is real sales minus the drag of healthcare and the borrowed-from-our- grandchildren federal deficit, which does not qualify as organic economic growth. Together, these two lines have a remarkably successful track record in predicting recessions, going back four decades.

Now they are once again dropping below the line-in-the-sand that signals recession. As for healthcare's correlation to recession, please read The Coming Great Recession, Brought to You by the Healthcare Cartel (December 1, 2015).

The blue line is federal deficits as a percentage of real sales--a measure of how much of the real economy is debt-funded federal spending. To state the obvious: an economy that requires massive central-state deficit spending to keep from imploding is not a healthy economy. Rather, it's a crony-capitalist Paradise on its way to history's ash-heap of failed Elites and failed policies.

Note that now, at the very peak of the 7-year long "recovery," this line is at levels that previously marked recessionary lows. This means federal deficit spending is at levels that were once considered "emergency stimulus spending" in the depths of recession.

Now we need extraordinary federal deficit spending just to keep from crashing.

But look out below, for even with bloated federal spending, the real economy has hit stall speed.

 

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Wed, 12/02/2015 - 12:29 | 6865850 Perimetr
Perimetr's picture

No worries,

Russian Su-24s fly at that speed all the time.

Wed, 12/02/2015 - 12:33 | 6865876 Hal n back
Hal n back's picture

regarding this post and yesterdays auto sales down 2 months in a row--could someone explain why wards is reporting strong auto sales while weak sales are reported here at ZH?

 

http://wardsauto.com/industry/november-us-sales-exceed-18-million-saar-t...

 

http://www.zerohedge.com/news/2015-12-01/despite-lebeau-gasms-domestic-vehicle-sales-slide-2nd-month-row-miss-most-5-months

Wed, 12/02/2015 - 12:37 | 6865891 New England Patriot
New England Patriot's picture

Initiate controlled dive to pick up airspeed.

Wed, 12/02/2015 - 12:58 | 6866005 Baa baa
Baa baa's picture

Maybe, how far is the floor?

Wed, 12/02/2015 - 13:22 | 6866146 A Nanny Moose
A Nanny Moose's picture

Better Punch Out

Wed, 12/02/2015 - 12:38 | 6865896 BandGap
BandGap's picture

Just reread both posts. It's not the underlying data it's what you see in it.

The unemployment percentage in this country is hovering around 5% according the BLS. What do you make of that?

 

Wed, 12/02/2015 - 12:45 | 6865929 lehmen_sisters
lehmen_sisters's picture

It amazes me that people actually believe those unemployment numbers...drive around the country, there aren't any middle class people anywhere. Either you own a business or a huge ass farm, or you are on food stamps, BLS stats are unnecessary if you have eyes. Not sure what idiot junked you.

Wed, 12/02/2015 - 12:52 | 6865961 CheapBastard
CheapBastard's picture
Retail apocalypse: Major chains closing 6,000 stores

 

http://www.wnd.com/2015/05/retail-apocalypse-6000-chains-closing-stores/

 

From May, 2015 but even worser now.

Wed, 12/02/2015 - 12:56 | 6865984 Rip van Wrinkle
Rip van Wrinkle's picture

That's easy to explain. Everyone shops online.

 

Do I need the /sarc?

Wed, 12/02/2015 - 12:57 | 6865988 Baa baa
Baa baa's picture

Some pissy liberal who believes he can save the world if we would just listen. Being a democrat really is a psychological disorder. How else can one explain their utter denial of the facts.

The democrats have finally evolved into a large, noxious fart.

Wed, 12/02/2015 - 13:14 | 6866108 Hal n back
Hal n back's picture

everything is bs. even financial reporting. So what can we hang our hats on, that the system is fully corrupt? You have comopanies screwing around, Congress and Adm, hedge funds, and individuals. Can't tell the players without a scorecard. Its like open season for lying and cheating.

 

Wed, 12/02/2015 - 13:01 | 6866031 Viffer
Viffer's picture

Was not sure if that was sales or some climate change graph due to the vodoo math going on.

The SAAR (or Seasonally Adjusted Annual Rate) looks pretty normal.  Sales are down, the SAAR falls.  Sales up, the SAAR increases .. that is until after Aug 15th when sales are down ... but the SAAR rises!

Wonder when colleges will start teaching this math.  Seems the same math applied to homes, temperature, the market. Positive is Positive, Negative is Positive!

 

 

 

 

Wed, 12/02/2015 - 13:09 | 6866085 seek
seek's picture

Ward's headline is the best spin possible: "November U.S. Sales Exceed 18 Million SAAR Third Straight Month" -- I highlighted the SAAR part, that's the seasonal adjustment. E.g., the lie.

Look at the chart on the Wards site, there's a bar graph with the not-seasonally adjusted numbers. You'll notice they're conspicuously down.

 

Wed, 12/02/2015 - 14:24 | 6866508 Kprime
Kprime's picture

when you multiply two negatives you always get a positive, Negative outcomes are multiplying even as we speak.

Wed, 12/02/2015 - 12:45 | 6865930 KnuckleDragger-X
KnuckleDragger-X's picture

Where we are is called 'stall buffet' which is the point just above stall. When we start falling out of the sky, I expect that our glorious leadership will manage to rip the wings off entirely and replace them with bricks to improve the plummet......

Wed, 12/02/2015 - 13:31 | 6866201 JuliaS
JuliaS's picture

A blonde is pulled over by a cop for speeding:

 

- Was I driving too fast, officer?

- No. You were flying too low.

Wed, 12/02/2015 - 13:46 | 6866288 Demdere
Demdere's picture

This will not be a normal recession.  This is end of an era, a change in many things at once.

Charles Hugh Smith is one of the people who are at the forefront of thinking and writing about that.  I finished his newest book a couple of weeks ago, strongly recommend it.  He has solutions, not just the ordinary analysis of problems in the economy and political system, but discussion of what rational people can do to protect their interests.

http://www.amazon.com/Radically-Beneficial-World-Automation-Technology/d...

Not just protect your interests, but help build a much better world as you do it.  Practical and idealistic at the same time.

 

Wed, 12/02/2015 - 12:30 | 6865855 lordbyroniv
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racist chart

Wed, 12/02/2015 - 12:46 | 6865933 Baa baa
Baa baa's picture

But the government told me it was due to climate change, it's my fault and I must pay.

Wed, 12/02/2015 - 17:00 | 6867478 TheDanimal
TheDanimal's picture

Do you happen to be white?  You're gonna have to tack on an extra 50% to that fee to counter your privilege.

Wed, 12/02/2015 - 12:30 | 6865862 pods
pods's picture

If a chart looks bad, zoom out and tilt a bit to the left to raise the right side, problems fixed.

-The BLS

Wed, 12/02/2015 - 12:44 | 6865925 onewayticket2
onewayticket2's picture

i think the weighting on "intangible sales" is too low....

Wed, 12/02/2015 - 12:46 | 6865936 KnuckleDragger-X
KnuckleDragger-X's picture

Invert it, that way it looks good......

Wed, 12/02/2015 - 12:34 | 6865881 lehmen_sisters
lehmen_sisters's picture

The big drops seem to be getting bigger, thats prolly just a coincidence and has nothing to do with bubble size before the crash landing, im scared....BERNIE HELP US!!!!!.</s>

Wed, 12/02/2015 - 12:37 | 6865889 QQQBall
QQQBall's picture

If the GAAP deficit is -$6T, what happens to the blue line? Right! B/c if you take the $6T in extra spending out, you get dislocations everywhere and the default waterfall starts.

Wed, 12/02/2015 - 12:39 | 6865902 eyesofpelosi
eyesofpelosi's picture

Okay...so I'm hopping around the net and I click on this...WTF?

Notice the title and then scroll down and behold...a strange questionaire...

 

http://www.dummies.com/how-to/content/what-to-do-with-information-from-t...

Wed, 12/02/2015 - 12:41 | 6865907 lester1
lester1's picture

No worries the Fed will continue to buy stocks covertly through their primary dealer banks to keep stocks going higher no matter what.

 

Audit the Fed NOW !!

Wed, 12/02/2015 - 12:41 | 6865908 BandGap
BandGap's picture

That graph scares the shit out of me. Seriously. This is going to be real bad.

Wed, 12/02/2015 - 12:41 | 6865911 Duc888
Duc888's picture

 

 

If you throw more money (debt) out of the aircraft, you'll lighten the load and thus prolong the decent.  Just ask Thebarnanke.

Wed, 12/02/2015 - 12:44 | 6865923 Baby Eating Dingo22
Baby Eating Dingo22's picture

An entire generation hasn't a pot to piss in

40% of young adults who live on their own still get money from parents

-

http://finance.yahoo.com/news/40-young-adults-live-own-202131588.html

So much for financial independence — over 40% of young adults between the ages of 25 and 32 who don’t live at home still receive some sort of financial help from their parents.

That’s according to a new paper in the journal Social Currents by Anna Manzoni, an assistant professor of sociology at North Carolina State University, who examined the relationship between parent-child cohabitation and financial support. Using data on 6,471 people between the ages of 18 and 32, Manzoni also found that attending a four-year educational institution makes people more likely to rely on mom and dad, especially those from higher socioeconomic backgrounds.

Young college grads don’t just benefit from financial support from their parents. Those who received financial aid from their parents during college are also more likely to live with their parents post-grad than those who paid for school on their own .

Wed, 12/02/2015 - 12:53 | 6865967 FreeShitter
FreeShitter's picture

Nephew has a new mustang gt and a new house courtesy of his rich mommy and daddy.....up to his ass in debt already but hey he gets to parade his fancy toys to all the broke millenials..

Wed, 12/02/2015 - 13:03 | 6865931 Grandad Grumps
Grandad Grumps's picture

Are the sales per GDP refugee adjusted or non-refugee adjusted?

My guess is that the numbers have not been accurately adjusted for inflation since raw materials are as much as 50% below their highs and since the US is an import economy and the strength of the dollar massively affects costs.

REJECTED without further clarification!

Wed, 12/02/2015 - 12:46 | 6865935 maneco
maneco's picture

Have a look at the Journal of commerce Index! It's one of the indicators the Fed has kept an eye on historically but seem to be ignoring it these last few years. Look at how it is collapsing just like it did in 2008! https://www.youtube.com/watch?v=d8kLV-H1Yqk

Wed, 12/02/2015 - 12:49 | 6865947 coastalwn
coastalwn's picture

so I say ... cappytan... we gunna crash...  cappytan.. cappytan... is this a japanese aircraft?... well then... commocasie...... commocasie... weeeeee

Wed, 12/02/2015 - 13:08 | 6866076 MATA HAIRY
MATA HAIRY's picture

Sumting Wong....Wee Tu Lo

 

Wed, 12/02/2015 - 14:04 | 6866383 NeoLuddite
NeoLuddite's picture

Thank you for frying with us - we hope you had a very nice fright.

Wed, 12/02/2015 - 13:28 | 6866182 moonmac
moonmac's picture

Slowdown's Gettin' Sleazy!

Wed, 12/02/2015 - 13:42 | 6866262 Soph
Soph's picture

Real Sales don't appear to support his argument. They are not showing a noticeable decline, rather they show recent strength (increasing from left --> right, not decreasing). Although he does try to fluff that out with several other assumptions in order to make his argument.

 

Things may indeed be at stall speed, but his arguments, and data, have some noticeable holes.

Wed, 12/02/2015 - 14:34 | 6866563 Iam_Silverman
Iam_Silverman's picture

"his arguments, and data, have some noticeable holes."

It may just be that his explanation is lacking.  Throwing out the noise from deficit spending I compared the black line to the red line.  I think what it is trying to imply is that while overall spending is up (sans deficit spending), a larger component of it is due to rising healthcare costs (insurance and actual care together).  Now that health insurance is mandatory, you have a component added that is always going to be constant or rising (unless Obama delivers on his promise for cheaper health insurance costs).  As the average consumer is forced to spend more on health care (benefits a few large corporations) they have less discretionary cash to spend on products that benefit retailers (both large and small businesses).

Wed, 12/02/2015 - 13:44 | 6866277 xizang777
xizang777's picture

You can survive stalls if you have altitude to recover.  If you don't - you're dead.

Wed, 12/02/2015 - 14:09 | 6866422 undercover brother
undercover brother's picture

good information.  thanks for posting.

Wed, 12/02/2015 - 14:19 | 6866476 Iam_Silverman
Iam_Silverman's picture

"once an airplane's speed drops to the point that cranking the wing angle up no longer provides enough lift, the airplane stalls out and starts an unintended (and often uncontrolled) descent."

 

Typically only true for an inherently unstable design (COG too far aft).  As long as you avoid the flat spin you'll be fine....

Wed, 12/02/2015 - 14:35 | 6866554 Kprime
Kprime's picture

"The hard-top for this hop was 10 trillion.  You knew it.  You exceeded that.  You followed Commander Bernake above that after he lost sight of the money and called 'no joy.' Why?"

Wed, 12/02/2015 - 15:03 | 6866715 Lmo Mutton
Lmo Mutton's picture

Lower the nose it will fly.

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